__economic thinking about sports__

The demand for cupcakes keeps increasing and, along with it, the payout from playing a road game at a major college football program. From the Columbia Daily Tribune:

In November, Missouri agreed to play two home games against Eastern Michigan, a Mid-American Conference school with a 6-30 record over the past three seasons. The Tigers will pay the Eagles $1.3 million to play at Faurot Field on Sept. 10, 2016, and $1.1 million for a game Sept. 26, 2020.

In February, the Tigers agreed to a $1.3 million home game against Idaho on Oct. 21, 2017. The Vandals play in the Sun Belt and have a 5-42 record over the past four seasons.

Both Eastern Michigan and Idaho will receive 400 complimentary tickets and the ability to purchase up to 1,500 more for their games.

Missouri will pay Southeast Missouri State $385,000 for a game Sept. 5 and $425,000 for one on Sept. 21, 2019. Missouri State, coached by former Tigers defensive coordinator Dave Steckel, will get $400,000 for coming to Memorial Stadium on Sept. 2, 2017.

Just in time for March Madness we have two views on paying college athletes.

The first is an excellent summary of the state of college athletics by Allen Sanderson and John Siegfried in the latest issue of the Journal of Economic Perspectives. “The Case for Paying College Athletes” is available for free download from the American Economic Association website and is definitely worth a read.

In a more humorous (and more profane) vein, it’s hard to beat Last Week Tonight with John Oliver talking on Sunday about “The NCAA“.

The American Economic Association now has JEL classification codes for Sports Economics and subareas within the field. Here are the codes:

Z2 - Sports Economics

Z20 - General

Z21 - Industry Studies

Z22 - Labor Issues

Z23 - Finance

Z28 - Policy

Z29 - Other

In an email from Peter Von Allmen, the president of the North American Association of Sports Economists, even though the codes will not be up on the AEA website for awhile, researchers can begin using these codes immediately to classify their research.

It wasn’t all that long ago where Sports Economics research wasn’t taken as seriously as research in International Economics, Labor Economics, Industrial Organization, etc. This is not to say that there have been no economists who have taken sports economic research seriously over the years and no important contributions from the field to Economics as a whole. Many Sports Economics papers have been published in top tier journals over the past half century. The field has its own journal, the Journal of Sports Economics, and many journals have published papers in Sports Economics. However, in many circles, sports economics research was seen as fun research and not something that serious researchers would pursue as their main area. These codes are validation that Sports Economics is not just fun. It’s an interesting and important field within the discipline of Economics.

Thanks to all who worked to get this done, particularly Tony Krautmann who got the ball rolling last summer by suggesting this at last summer’s NAASE meeting at the WEAI’s.

The following is a guest post by Dr. Dan Kuester, the Director of Undergraduate Studies and the Roger Trenary Chair for Excellence in Economic Instruction at Kansas State University. Dan and I were graduate students at the University of Missouri back in the 90′s.

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I’m a bit obsessed with conference realignment and the influence that big money television contracts have had on college football. Ever since the NCAA lost the 1984 Supreme Court decision which stated they were in violation of antitrust law, the influence of television contracts in college athletics has grown dramatically.

I have seen this influence from a couple of different perspectives as I am an alumnus of Missouri who has taught at Kansas State University for nearly eleven years. Fans of those respective schools typically have very different views of those schools which have moved conferences for a perceived better deal. (I do highly recommend “The 100 Year Decision” by R Bowen Loftin for a very insightful perspective on Texas A&M’s move to the SEC).

While some folks continue to “cut the cord”, television contracts (which are at least somewhat ratings driven) are a huge source of revenues for all sixty six BCS level institutions (I am including BYU and Notre Dame). Texags.com recently put together an infographic showing the ratings averages for each of these sixty six schools. Certainly, the author enjoyed sharing the results which showed the somewhat predictable SEC dominance on the ratings and The Big 12 lagging behind in fifth place out of the five BCS Conferences.

The University of Texas tied for 34th in the television ratings while A&M placed 12th , the type of news Aggie fans enjoy a great deal. The highest-ranked Big 12 team was Oklahoma at #26 while SEC teams made up twelve of the Top 25 spots. Also, in the twenty-five most-watched football games this season (not counting bowls), SEC teams participated twenty three times, Big Ten teams participated eleven times, ACC teams participated eleven times, while Big 12 and Pac 12 teams were only represented one time each as were Army, Navy, and Notre Dame. It is fairly obvious that the Big 12 did not have any single game that drew huge ratings. The highest rated Big 12 game (TCU vs. West Virginia with 4.43 million viewers) finished well outside of the Top 25 rated broadcasts. My analysis of the data also suggests that the relationship between CBS and the SEC is very beneficial for the conference even as a “loss leader” as nine of the twenty five most viewed games were on CBS.

As an economist, when I study data like this at SportsMediaWatch.com I immediately want to make sure what is being looked at is an “apples to apples” comparison. The thing that immediately stood out to me was there are a number of games on stations like ESPNU or FS1 or FS2 that bring down the average rating for a team dramatically.

Obviously, a complete picture of television ratings should include all twelve (or more) games that a team participates in. Unfortunately, this is not something we can figure out because of a lack of access to all relevant data. I would suggest that games on the SEC Network or the Big Ten Network are drawing considerably more viewers than a game on the Longhorn Network. This in turn probably dwarfs the number of fans who are watching a game on K-State HDTV, which is internet-only. But since games on all of these avenues (along with the Pac 12 Network, regional Fox Sports networks, syndicated ACC games, pay per view games, etc.) are not rated, it seems unfair to cherry-pick the games that warrant a broadcast on CBS, ABC, ESPN, FOX or other major networks and only count those games as an indicator of the popularity of a team. For example, Florida ranks seventh in the ratings TexAgs.com compiled, but they were only on a rated television broadcast five times this year in the eleven games they played. Meanwhile, Oklahoma was on a rated broadcast eleven times in the twelve games they played. Clearly, if games against Kansas and Iowa State were on a station that did not report TV ratings, OU’s average television rating would go up fairly dramatically.

In order to attempt to correct for this bias, I assumed that there were no viewers for games that were not rated telecasts and then recalculated the average rating per team. I realize that this is an imperfect method but for the most part (with notable exceptions such as the Texas A&M vs. South Carolina game on the SEC Network) the games that do not warrant a broadcast on an established network will draw a small enough viewing audience that assuming a value of zero for these games will only bias these numbers slightly. I would encourage suggestions as to other ways to correct for this bias, but I did not want to start guessing television audiences for these non-televised games. I do feel that the teams that are most adversely affected by this correction are SEC and Big Ten teams as the SEC and Big Ten Networks are probably drawing the most viewers for games where ratings are not available.

The TexAgs data suggests the following average ratings (I believe I have replicated this correctly).

Finally in the original data there are twelve SEC teams in the Top 25, seven Big Ten teams, three Pac 12 teams, two ACC teams, and one independent team. In the adjusted ratings there are ten SEC teams, five Big Ten teams, five Big 12 teams, three Pac 12 teams, one ACC team and one independent. This data will have a slight “pro Big 12 bias” as over seventy eight percent of Big 12 games were rated while other conferences are between fifty three and sixty percent rated games. To reference the examples I pointed out above in these adjusted ratings Oklahoma finished 15th in average TV rating (up from 26th) while Florida finished 22nd (down from 7th).

Another important note about these adjusted ratings is BYU looks a little better by comparison when one considers they were on television nine times last year on a rated network. Their adjusted ratings would put them right in the middle of the ACC rankings. I personally feel (possibly a football only member) they would be a strong potential addition to the Big 12.

All of my data is available at my webpage (see the bottom of my page for the links ) and any errors in calculating the number of games each team had rated are my own. Here is the revised Top 25.

President Obama’s proposed budget to Congress presents a fairly strong challenge to Republicans. It redistributes income from the rich to the middle class often by eliminating loopholes that benefits the wealthy. Spectator sports will take two big hits if this budget gets passed.

First, college sports teams will no longer be able to package sports tickets with a deductible charitable donation to the college or university. Currently many teams require season ticket holders to make a donation to the college in order to purchase season tickets. Why charge, say, a $1000 donation plus $500 for season tickets instead of just charging $1500 for the tickets in the first place? Because the $1000 is tax deductible for the purchaser allowing the season ticket holder to get back $200 or $300 dollars on their tax returns. Basically, this works like a mail-in rebate for season ticket holders paid for by the federal government allowing colleges to charge more for tickets.

Second, municipalities will no longer be able to issue tax exempt bonds for stadium construction if private teams are the primary recipients of the revenues of the stadium. One might call this the “Levi Stadium Tax Avoidance Repeal Act”. While the new 49ers stadium was almost entirely privately financed and is operated by the 49ers, the stadium is still technically owned by the municipality. An examination of the financing of this stadium by Robert Baumann, Debra O’Connor, and myself found that this financing arrangement works out to a roughly $200 million tax subsidy for the stadium despite almost no direct taxpayer subsidies.

Overall, sports economists have long been critical of both of these hidden subsidies for sports and are just happy that we are so influential with the President.

Sounds like the beginning of a bad joke, doesn’t it? However, both have significant concerns about what is arguably the most significant tax loophole for upper income earners – the “stepped up basis” for heirs of appreciated property.

Currently capital gains are taxed at a top rate 23.8%. Thus, if a person buys an asset for $10 and then sells it later for $110, the seller is on the hook for income tax on the $100 gain for potential tax bill of up to $23.80.

However, if a person dies and leaves the asset to his or her children, no capital gains tax is ever paid on that asset and the cost or “basis” for the asset is reset to $110. If the children were to later sell the asset for $210, they would only pay income taxes on the change in price from the time they inherited the asset until when they sold it (i.e $210 – $110 = $100) not the entire appreciation of the asset over time ($210 – $10 = $200). No income taxes would ever be paid for that first $100 of capital gains accumulated by the family.

So what do Sterling and Obama have to do with this? Well, in yesterday’s State of the Union address Obama asked, “Let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth.” Specifically, President Obama would change the tax code to require a person’s estate to pay taxes on any accumulated but unrealized capital gains at the time of a person’s death.

And what about Sterling? One question many people had was why Sterling was so adamant about hanging on to his team when he was uniformly hated by his fans, his players, and the rest of the league following the release of recordings of him making racist comments. Well, Sterling had over 400 million reasons to hang on to his team. Having purchased the team for a mere $12.5 million back in 1981, by selling the franchise to Steve Ballmer last year for $2 billion, the tax bill on Sterling’s sale of the Clippers might come to as much as $470 million, although clever accountants will probably be able to whittle that down a bit. On the other hand, had the 80-year old Donald Sterling died while still owning the team, his heirs would have owed a grand total of $0 in capital gains tax on the franchise.

Under Obama’s proposed tax changes, the $470 million in capital gains tax would have to be paid either by Sterling when he sold or by his heirs when he died. Sterling would have no tax incentive to hold onto the team until his death. Of course, the chance of an Obama tax reform proposal passing under the Republican-controlled Congress is about the same as the Lakers winning the NBA title this year, but this is one tax loophole that deserves to be expelled from the league.

Nebraska has fired its head football coach Bo Pelini after 7 years as head coach of the Nebraska Cornhuskers. Despite a 9-3 record, this is unsurprising to me. Mitch Sherman at ESPN has some stats:

The former defensive coordinator at LSU and Oklahoma, Pelini, in his first head-coaching job, produced notable consistency but little evidence that Nebraska was set to take the next step as a program. It lost 59-24 at Wisconsin on Nov. 15, surrendering a then-FBS record 408 rushing yards to Melvin Gordon in the latest embarrassing defeat for the program.

Nebraska has lost 10 games by 20 points or more since 2008, Pelini’s first season, and allowed 45 points or more in six games since the Huskers joined the Big Ten in 2011.

Pelini improved to 67-27 as Nebraska’s coach on Friday with a 37-34 overtime win at Iowa. The victory pushed Pelini’s win total past Tom Osborne for the most ever at the school in a coach’s first seven years.

In fact, no coach in the history of a Power 5 program had been fired for on-field performance after winning as many games in his first seven years. Only Alabama and Oregon – first and second this week in the College Football Playoff rankings – can match the Huskers in winning nine games each year since 2008.

He also guided the Huskers to 7 bowls, winning 4. But despite winning a few division championships (2009 and 2010 in the Big XII and 2012 in the Big 10), he never won a conference championship let alone a national championship. For a program that still boast a consecutive sell-out streak (340 games) that dates back to 1962 and five national championships, this simply won’t do.

Frankly, I’m surprised the university was as patient with Pelini as it was.

To leave St. Louis, Kroenke would need approval from three-fourths of his fellow team owners and prove that the community was refusing to take steps to satisfy the lease.

Nixon’s efforts negate that argument for now, but it hasn’t stopped speculation that Kroenke has his sights on the more lucrative Los Angeles market, where some say the team would be worth twice what it’s worth now.

At $930 million, Forbes ranked the Rams last in the league, compared to the Chiefs at $1.1 billion and No. 1 Dallas at $3.2 billion.

Kroenke only added to the conjecture when he bought 60 acres in the Los Angeles suburb of Inglewood last winter. Then on Nov. 6, the same day Nixon made his announcement, Rams representatives met privately with that city’s mayor.

Several teams that can exit their lease deals are considered possible transplants — the San Diego Chargers, St. Louis Rams and Oakland Raiders. All three have historical ties to Los Angeles — the latter two franchises were once based in the city, and the Chargers played their inaugural season in Los Angeles in 1960.

I’m glad that tactic wasn’t successful up here in cold, snowy Minnesota. Wait. What (see the third to the last paragraph)?

See here for an old post of mine at Market Power regarding how St. Louis originally got the Rams in the first place.

(Co-authored by Ann Sheehy, Department of Biology, College of the Holy Cross.)

The Africa Cup of Nations, the continent’s mini-World Cup, is played every two years by the national teams of 16 African countries who have competed in a series of qualifiers to play in the final tournament.

Like the World Cup, the tournament site moves between various host countries and, until earlier this week, the 2015 games were scheduled to kick off in Morocco on January 17. On Tuesday, however, fears that the Ebola outbreak in west Africa would spread to Morocco led the country to abandon its plans to host the upcoming event after having its request to postpone the competition by a year denied by the Confederation of African Football (CAF).

CAF is now scrambling to find another country to hold the finals and has expelled the Moroccan team from further participation in the tournament. Morocco’s refusal to host the tournament, which pandered to the worst fears about this disease, is based both on bad science and bad economics.

It is completely reasonable for any country to want to take appropriate steps to prevent the spread of the Ebola epidemic which has so far killed more than 5,000 people, primarily in the west African countries of Liberia, Sierra Leone, and Guinea. The Africa Cup of Nations, however, is an unlikely candidate to promote the further spread of the disease.

From an epidemiological standpoint, since Ebola victims are contagious only once they show symptoms, the disease is not likely to be spread through attendance at football matches. Those showing symptoms will be too sick to travel, and those well enough to travel will not be contagious. Even if a fan travelled to Morocco during the 21-day incubation period for the disease and then began to show symptoms, the fact that the disease is only spread through contact with bodily fluids, not casual contact with other fans, means is unlikely to be a significant source of transmission.

The case against a delay in the tournament is even stronger. Thus far, the overwhelming majority of victims are either those living in poverty with little or no access to sanitation or routine medical care, or people engaged in primary health care provision. Neither group is likely to have the time or the resources to make the 2,000 mile journey from the disease epicentre to Morocco this coming January.

Finally, like most boosters’ claims about the economic impact of major sporting events, Morocco’s estimates of the number of visitors that the event would bring were wildly optimistic. Morocco’s sports minister Mohamed Ouzzine said the country was expecting an influx of between 200,000 and 1m fans. The idea of one million arrivals from infected countries is scary indeed but also completely laughable.

The 2006 World Cup in South Africa, a tournament with twice the number of teams, a much higher level of prestige, and entrants from the wealthiest, most populous, and most football-mad countries in the world, resulted in an increase of roughly 200,000 visitors to the country. There is simply no way a minor continental tournament will draw even close to the same number of fans as the world’s premier sporting event.

And in footballing terms, of the three countries at the centre of the outbreak, Liberia has already been eliminated, and both Sierra Leone and Guinea are longshots to make the final slate of 16 teams. Without their teams in the tournament, there is little reason for fans from the infected countries to make the long and expensive trip to the Cup of Nations. Even if Guinea, the team with the best chance to advance, were to make it to Morocco, the number of additional arrivals from this afflicted country is more likely to measure in the dozens than in the thousands.

In the end, hats off to the Confederation of African Football for not succumbing to an irrational fear of the disease. Now the hard work of organising a new tournament in another country in less than two months begins.

In 1998, the Brewers left their old stadium in Chandler, Arizona, for Maryvale Baseball Park in Phoenix. Was that a blow to the economic development of Chandler? Not exactly, as Richard Williamson describes in an informative article published in The Bond Buyer. The city appears to be thriving. It “is in great fiscal health”, it’s “high-tech city hall has won architectural awards and anchors a revitalized historic downtown,” and population has increased 30%, to 240,00 (see slide 10) since the Brewers departed after “relatively contentious” negotiations. Chandler’s bond rating has increased from AA- to AAA , moving in the opposite direction of sports-intensive Glendale (from AA to BBB-plus).

According to the article, the Brewers are have started discussions with Peoria — to the northwest of Glendale — about developing a new facility there. The folks in Peoria, already the Cactus League home of the Mariners and Padres, might do well to look at the example set by their neighbors in Chandler.

This is a rare news story where the opportunity cost of stadium investment is vividly illustrated. Thanks to Adam Pope for sending it.